Vancity offers alternative to payday loans

Kevin Griffin, Vancouver Sun06.24.2014

Vancity officially launched a new alternative to payday loans on Tuesday that could make a big difference in the lives of people living from paycheque to paycheque. The new financial product is called Vancity Fair & Fast Loan. If a credit union member borrows $300 for minimum term of two months and pays it off in two weeks, it would cost $2.20, a 19 per cent annual percentage rate.

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A new alternative to payday loans officially launched by Vancity on Tuesday could make a big difference in the lives of people living from paycheque to paycheque, according to an official with Family Services of Greater Vancouver.

Tulia Castellanos, director of strategic community engagement, said the Vancity program will be charging so much less in interest, it could greatly increase the rate that loans are repaid on time. As well, it could help people establish a credit history, she said.

“If this ... is truly accessible for people, I strongly believe that it will dramatically change how people in low income can manage their finances,” she said.

“It will make a big difference.”

The new financial product is called Vancity Fair & Fast Loan. If a credit union member borrows $300 for minimum term of two months and pays it off in two weeks, it would cost $2.20, a 19 per cent annual percentage rate.

At The Cash Store, a $300 loan for 14 days at an interest rate of 23 per cent of the principal would cost $69. The annual interest rate on that loan works out to 599.64 per cent.

Consumer Protection B.C. defines a payday loan as a loan of up to $1,500 that doesn’t require security and has to be repaid within 62 days.

Castellanos said people using payday loan services are living in what she described as virtually a parallel world compared to people with a regular paycheque. For someone with unstable income, a crisis can lead to the person having no choice but to take out a payday loan which can, in some cases, lead to a spiral of debt and eventual homelessness.

What can happen, she said, is that once payday loan companies have access to someone’s bank account, they can start withdrawing money to pay back the loan if the person who has taken the loan can’t pay it back right away. In some cases, that can leave people short on rent money.

“Their lives are really a kind of house of cards. If you push one card, everything falls apart,” she said. “It is really stressful. People stop eating to pay these loans.”

Linda Morris, Vancity’s senior vice-president of business development, said Vancity has been quietly trying out its new alternative to payday loans since April.

“Profit was not our first motivator,” she said. “Our first motivator knowing that there is a problem out there and seeing if we could solve it in our unique way.”

She said Vancity has introduced the new loan product because it supports the credit union’s core values of “social justice and financial inclusion.”

“We have an opportunity here to do something different and really help with an individual’s well being,” she said.

According to Consumer Protection BC, more than 100,000 people in B.C. took out 800,000 payday loans in 2013.

“Our members as well are supportive of this,” Morris said.

“When we did a survey about a year ago, before we down this path, they said yes, someone has to step forward and do something different.”

Morris said she wasn’t aware of any of the big banks in Canada offering anything similar to Vancity’s alternative to payday loans.

A poll released Tuesday by Vancity said that 67 per cent of payday loan users in Metro Vancouver and Greater Victoria are borrowing several times a year. The poll, conducted by Insights West, found that 38 per cent took out payday loans because they had expenses they hadn’t anticipated and 37 per cent because they were getting behind on bills. The survey sample of payday loan users had 131 respondents and has a margin of error of 8.5 per cent.

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Vancity offers alternative to payday loans

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